The Semiconductor Industry Research Center of CCID Consulting recently reviewed China's mobile phone production in Q1, 2007. Compared to the last quarter, production of mobile phones slowed down in Q1, but developments in high end products such as smart phones are expected to drive output upwards by end of 2007.

Driven by the high output in the second half of 2006, mobile phone in the whole year saw a 45.7% rise in output, the fastest since 2002. After the high growth at the end of 2006, mobile phone makers in China entered a traditional period of reduced growth in early 2007. Mobile phone output fell to 112.920 million sets from 125.481 million sets in 2006Q4. However, the mobile phone chip market did not fall so notably. This was mainly due to the increased percentage of high-end application mobile phones such as smart phones and music phones.

Integrating such application functions such as music, photo taking, information processing and mobile interconnection is the natural development trend for personal information terminals, while smart phones are the best carriers to achieve these functions. As the smart phone market becomes more mature, the percentage of smart phone in the mobile phone output has also gradually risen. Meanwhile, there is a continuous drop in the price of smart phone chips. This has attracted end consumer groups to take up the high-end market of non-smart phones. Driven by these dual factors, smart phone chips have started to enter a period of fast growth from one of application kick-off. In the future periods of time, the smart phone chip market will become the driving force for the mobile phone chip market.

Mobile phone's growing internal memory capacity is also a flashing growth point in the chip market. The storage of multimedia data has rather high requirements for storage capacity. With the penetration of camera, HD video and music functions amidst high pixel mobile phone, phones with low capacity no longer satisfy customer's application demands. In the past few years, multimedia application mobile phone basically relies on attached storage card to expand their storage capacity. As the price of NAND Flash drops, there is a trend of rise in mobile phone's built-in storage capacity. In addition, the approaching commercial use of 3G in China will also become a favorable factor for driving up the growth of the mobile phone chip market. Compared with current 2G mobile phones, 3G's advantage lies in its increase in downlink speed from 128kbps to 384kbps, while multimedia is the best application of 3G. 3G applications therefore firstly drive up the growth of the multimedia chip market.

On the whole, despite a drop in 2007Q1, China's mobile phone output will continue to grow in the whole year of 2007. Meanwhile, affected by such factors as smart phones and 3G applications, China's mobile phone chip market will experience structural upgrading and reach a new height.